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An investor is considering purchasing a bond with a 7.45 percent coupon interest​ rate, a par...

An investor is considering purchasing a bond with a 7.45 percent coupon interest​ rate, a par value of $1,000​, and a market price of $1,033.31.

The bond will mature in nine years. Based on this​ information, answer the following​questions:

a. What is the​ bond's current​ yield?

b. What is the​ bond's approximate yield to​ maturity?

c. What is the​ bond's yield to maturity using a financial​ calculator?

​Note: Assume coupon payments are paid annually

a. The​ bond's current yield is ______%.  (Round to two decimal​ places.)

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Answer #1

a.

Current Yield = 74.50/1,033.31

Current Yield = 7.21%

b.

Approx YTM = [74.50 + (1,000 - 1,033.31)/9]/(1,000 + 1,033.31)/2

YTM = 6.96%

c.

Calculating YTM,

I = [FV = 1,000, PV = 1,033.31, T = 9, PMT = 74.50]

I = 6.94%

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